Start-ups urged to act now to attract enterprise investment

Scheme can provide capital gains tax to investors

Start-up businesses should be acting now to attract investment through the Enterprise Investment Scheme (EIS), according to tax experts.

The EIS offers to reduce a private investor’s tax liability by a proportion of the amount they invest, as an incentive for them to back small, higher-risk companies. The scheme can also provide generous capital gains tax relief (CGT) to investors.

Following the Budget, the scheme has been improved; on April 6 2011, the income tax relief was raised from 20% to 30%. More changes are expected from April 2012, which will further increase the relief available to investors and open the scheme up to more businesses.

Lisa Dicken, tax expert at national accountancy firm HURST, says that “EIS should not be overlooked and, with the recent changes, it should be encouraging more investment in businesses across the country.”

“Many individuals are looking for ways to reduce their exposure to the 50% rate of income tax; the recent increase in the tax relief available under EIS can be a good way to achieve this.

However, she warns that investments in EIS companies “should not be entered into just for the tax saving – there is a risk attached to them. “However, where an investment is already being considered, the benefit provided by EIS relief can help balance that risk and make the investment more appealing to investors.”

 

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